This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered including.

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Presentation on theme: "This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered including."— Presentation transcript:

2 Agenda How does J.P. Morgan manage counterparty risk? Group sessionsHow do you manage counterparty risk?What are your priorities?What are your biggest challenges?What is the right model?Review of findingsRun through the topics and questions at the end

3 How does J.P. Morgan manage Counterparty Risk?Understanding the financial strength of banks…Two-pronged approach:Analysis of the Fundamentals (Quantitative)Overlay the Qualitative

4 How does J.P. Morgan manage Counterparty Risk?Analysis of the Fundamentals (Quantitative)CapitalAssetsManagementEquityLiabilities and LiquiditySo obviously we’ve discussed rate volatility through the crisis but the issue here is that it continues.Interbank liquidity continues to be tight. Perception is everything.Northern Rock example. Who would have considered a household name UK Bank would have to be nationalised in the 21st century?Perception that the bank was in trouble drove investors to withdraw their cash in droves.Flight to Quality….ie not everyone takes the same view. The consistent theme across our clients is that there is no consistency….Flight to Transparency….exponential growth in liquidity funds as proactively addressed the need to provide transparency.

9 How does J.P. Morgan manage Counterparty Risk?Operating model:Effective and sustainable liquidity management requires a balance between:Capital PreservationLiquidity / Availability of FundsConvenience & CostReturn / PerformanceIn addition, the balance must be achieved in compliance with the investment risk and currency risk management policiesManagement oversight and reporting are additional over-heads which must be organised to be efficient if practice is to be maintained long termLiquidity Management is not a ‘fair-weather activity’ or a ‘knee-jerk reaction’. It is a fundamental part of business

11 Group SessionMarket turmoil continues and the effect of Government intervention has yet to fully play out.Markets are no longer waiting for return to “normal” but to a new paradigm.Availability and cost of liquidity remains difficult.Volatility has enforced behaviour change;Investment guidelines.Diversification.Transparency and due diligence.Operational risk, not just counterparty/instrument risk.Increasing regulation brings extra requirements, but also opportunities.